UK calls for more corporate governance on CEO pay, will Canada follow suit?

By
Mike Drolet Global News

WATCH ABOVE: Executive pay has long been a controversial issue. How much is too much? Should the government have a say? In Britain, they're now debating those very questions. Could Canada be next? Mike Drolet reports.

What is this?

Putting a limit on what private companies can pay their chief executives is a topic that may be gaining increased traction in the wake of a British report on the possibilities of corporate governance. The report comes in the wake of the scandal that has engulfed retailer British Home Stores (BHS).

The retailer’s owners are alleged to have used the company to enrich themselves at the expense of its employees. On Aug. 29, the 88-year-old company closed the last of its 164 stores. A total of 11,000 people lost their jobs and their pensions are at risk. The story has left Britons enraged.

To make sure everybody plays by the same rules, Prime Minister Theresa May has proposed companies be required to publish pay ratios, revealing how much more executives make than the average worker.

Currently in the U.K. executives make 140 times what the average workers make. In Canada, CEOs earn about 184 times what the average worker earns, according to the Canadian Centre for Policy Alternatives.

The report also suggested Pension Trustees be given increased roles in how companies are run to protect the interests of the workforce.

Canadian rules go beyond the current laws in the U.K. but not as far as has been proposed. Companies in Canada have to divulge to their shareholders what CEOs make – but there’s no cap on salary and bonuses.

“The top hundred CEOs in Canada make as much money collectively as all of the residents in a medium-sized city in Canada,” says Hugh Mackenzie of the Canadian Centre for Policy Alternatives. “I mean it’s just absurd amounts of money.”

The most recent numbers come from 2014 when Canada’s top CEOs pocketed an average of $8.96 million.

Some companies have capped themselves, most notably Lee Valley tools. Its founder, Leonard Lee – who died earlier this year – famously mandated that the top executives make no more than 10 times what the lowest earner pulled in.

In the U.S. George Romney, the father of one-time Republican presidential nominee, Mitt Romney, applied that same 10-times scale to American Motors in the 1960s, despite generating record profits for the company.

“They offered him a huge bonus, and he turned it down,” Mackenzie said. “And his publicly stated reason for turning down his bonus is that he didn’t think he should be making more than 10 times what the production worker on the assembly line at American Motors was making.”